This year’s US equity markets, as we’ve banged on about a fair bit before, have been dominated by a handful of themes: value versus growth, interest rates and inflation, retail mania, US fiscal policy, Covid variants and so on and so forth. You know it. We know it. In fact, you can’t open an equity strategy note without bumping into one of these often interlinked ideas within the first few pages.

It’s not such a bad thing, mind you. For one it does make markets easier to digest. Delta variant causing worries on the continent? Well that trade’s easy . . . European travel, banks, aerospace and retail down, long-duration assets up. Hey presto.

It is at least different to last year, when it seemed — in the US at least —that the long tech/ high beta trade was the only game in town after the Covid crash of March. Then, you just had to make sure you were long stuff clipping along at a double-digit-revenue growth rate with a working-from-home theme, and you likely beat the market by several percentage points. In a way, it was an expression of a wider economic trend: in a lockdown world of scarce-to-no growth, only a few businesses could keep up any top line momentum.

Today, we were sent this chart by Baird’s Managing Director of US Equities, Ross Yarrow, which we thought neatly summed up how much had that particular broad-vs-narrow growth theme had changed in the markets this year:

Yep, compared to 2020, the top five companies in the S&P 500 only contributed 4 per cent to the blue chip index’s 14.4 per cent return, compared with an over 12 per cent contribution last year. And look at the names — there are hedge fund hotels Google, Facebook and Microsoft sure, but also . . . energy giant Exxon Mobil, which has returned 52 per cent year-to-date on the back of rising oil prices.

It’s an indication of just how broad growth has been in the US equity markets this year versus last. Which is also expressed by the S&P 500 trumping total returns of S&P’s Midcap 400 index (17.6 per cent), Smallcap 600 index (23.3 per cent) and, of course, the Russell 2000 (17.4 per cent). Within that, as you may know, value stocks have been ripping, with the S&P Smallcap Value index up a whopping 30.4 per cent year-to-date.

Whether this trend continues is another matter. The size of the Biden administration’s infrastructure bill has disappointed many, while inflation fears seem to be cooling off (if US bond yields are anything to go by at least). Yet with the infamous Skew index suggesting trouble beneath the surface, it seems we’re in for a similarly choppy second half of the year. Just don’t ask us to tell you the direction of travel.

Related Links:The tech sell-off and the rise of the inclusive growth trade -- FT Alphaville